APPD Market Report Article

Seoul

December 1, 2021

-7.8%

KRW 1,612,419

Rents
Falling

Consumer sentiment remains a mixed bag

  • The consumer sentiment index that displayed a persistent increase for seven consecutive months plummeted 7.1 bps and another 0.7 bps in July and August, recording 103.2 and 102.5, respectively, then rebounded to 106.2 in September. Meanwhile, retail sales remain unabated, lifted by 7.9% in July and 3.8% in August on a y-o-y basis. Department store sales recovered from the downtrend in August.
  • Same-department sales growth contracted 5.9% in July, then improved to 9.2%. Particularly, sales of household products and kids/sports sector showed an upsurge as companies are adhering to WFH policies and the demand for outdoor sports equipment increased due to COVID-19. The latest record of monthly visits of Chinese tourists stayed relatively flat, with a slight uptick of 5.1% on a yearly basis.

Vacancy tightens in the Myeongdong area

  • No new retail supply was added to the JLL stock in 3Q21.
  • Noon Square vacancy fell by 10.4 ppts as Nike resolved sticky vacancy to some degree, recording 31.8%. Myeongdong started to recover, while vacancy rate of high streets in Gangnamdaero, Garosugil and Cheongdam witnessed upticks. Parnas Mall vacancy spiked to 9.8% from a fully occupied state. Vacancy of Podo Mall and Hongdae high streets also were up, while COEX and Lotte World Mall stayed flat.

Market yields continue to ratchet up amid market headwinds

  • Shopping mall rents climbed 0.6% q-o-q with offline retailers enhancing their existing shops via remodelling. In fact, Podo Mall is undergoing a large-scale refurbishment with extensive changes to its major tenant portfolio. Prime high street rents dropped by 0.6% on a quarterly basis.
  • Amid the contraction in the capital value of retail assets, investment yields for shopping malls climbed to 5.05% and that of high streets at 4.48%, respectively, recording a 10 bps q-o-q increase. A notable deal was the sale of three Homeplus branches that IGIS Asset Management sold to Daelim for KRW 350 billion.

Outlook: Offline retail businesses are seeking resilience strategies

  • As the number of foreign tourists seems to remain subdued and with the government considering ‘With COVID-19’ measures, offline retail establishments are attracting domestic consumers with value-add strategies to promote sales and rental growth. Amid market volatility, landlords may sign shorter leases to improve occupancy.
  • Hypermarket transactions are expected to increase as IGIS Asset Management plans to sell four additional Homeplus assets with upcoming fund expiry. Although interest rate hikes are expected, hypermarkets will still appeal to investors for their potential to be redeveloped into other asset forms. Investors will also gauge the right time to purchase under-valued assets.

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

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