APPD Market Report Article

Seoul

February 28, 2022

-5.9%

KRW 1,596,295

Decline
Slowing

Department store sales increase aided by the holiday season

  • The consumer sentiment index continually increased for two consecutive months, recording 106.8 in October and 107.6 in November, before settling at 103.9 in December. Retail sales marked a 7.4% increase in October and 4.6% in November y-o-y. The same-department-store sales stayed in positive territory, reaching 15.0% in October and 12.4% in November, which was almost double that of July’s figure.
  • Overall sales observed a slight uptick on the back of improved sales of winter supplies, household products, kids/sports and famous foreign brands. Additionally, year-end shopping and the transition to a step-by-step recovery from COVID-19 led to rising footfall from domestic consumers. The latest number of monthly Chinese tourists improved by 22.3% on a y-o-y basis, recording 14,035 arrivals.

Shopping mall vacancy rates fall marginally

  • No retail assets were introduced to the JLL basket in 4Q21.
  • The vacancy rate of Time Stream, which recently underwent refurbishment, shrank by more than half q-o-q. Parnas, COEX and IFC Malls also witnessed improved occupancy, while Noon Square and Lotte World Mall vacancies increased. For high streets, vacancy rates in Garosugil, Cheongdam and Hongdae decreased slightly while that of Gangnam-daero hiked. Meanwhile, Myeongdong’s vacancy rate stayed flat.

Shopping mall rents exceed the pre-pandemic level

  • Shopping mall rents rose 0.6% from the previous quarter, surpassing the pre-pandemic level while prime high street rents stayed flat q-o-q and contracted by 3.1% y-o-y. Rents of Myeongdong dropped the most, eroding by 1.0% q-o-q, whereas Cheongdam and Hongdae high street rents rose by 1.0% q-o-q.
  • Both shopping mall and high street investment yields rose in equal measure by 10 bps on a q-o-q basis, recording 5.2% and 4.6%, respectively. A notable deal in the quarter was the purchase of Lotte Mart Yangpyeong Branch by Lotte REIT from Mastern Investment Management for about KRW 34.6 billion. It was a sale-leaseback deal wherein Lotte Shopping has a long-term lease contract.

Outlook: Offline retail adapts to the new normal

  • Backed by the “With-COVID-19” scheme, overall footfall recently improved, leading to sales growth of various product lines. Accordingly, overall sales may stay positive for a while as consumer sentiment is likely to remain upbeat as pandemic-weary consumers are on the brink of a spending spree. Nevertheless, it will still take some time to see a full recovery.
  • Investors look into new investment opportunities of retail assets for potential conversion to residential properties and warehouses. Amid the prolonged pandemic, investors seek to dispose of property. However, the pricing gap between the buyer and seller may be significant, making it difficult to close the deal.

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

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