APPD Market Report Article


February 28, 2023

Veronica Shim, Head of Research, South Korea


KRW 30,819


The Central, West and South-east submarkets welcome new tenants

  • In 4Q22, the net absorption of the overall Seoul Capital Area (SCA) logistics market recorded about 90,800 pyeong, with existing and new buildings welcoming tenants equally. New tenants to the SCA market in the quarter included 3PLs, cold-chain platforms and life science companies. The annual net absorption for 2022 was about 475,800 pyeong, which was the second-largest figure in recorded history.
  • Osan Logipolis, which was newly supplied in the quarter, welcomed a local 3PL tenant as well as a food material distribution company, which was the most prominent leasing deal in the Central. The South-east submarket introduced multiple 3PL tenants, thereby boasting a positive net take-up figure. The West was the only submarket to record negative net absorption upon the withdrawal of tenants.

Significantly fewer new completions than expected

  • In the quarter, seven new centres came on-stream. Specifically, there were four in the South-east, one in the South, one in the West and one in the Central. The new centre in the West has the largest single-asset GFA in SCA. Despite the previous forecast of 16 new centres in 4Q22, only seven of them were completed by year’s end.
  • The vacancy rate in SCA was 8.2%, the highest since 1Q20. The North, South and South-east stayed flat, while the vacancy rate in the Central recorded 3.8%. The West’s vacancy rate more than doubled from 10.3% to 23.5% q-o-q. The new centre in Incheon, with a GFA of around 130,152 pyeong and which is currently entirely vacant, caused the submarket’s vacancy rate to spike.

Lowest recorded logistics transaction volume in ten quarters

  • Overall net effective rent in the SCA market recorded KRW 30,819, up 1.9% q-o-q and 5.4% y-o-y. Rents in the Central, North and South rarely changed, while rents in the South-east rose by 2.0% and in the West by 1.4% q-o-q.
  • The investment volume in 4Q22 was KRW 722 billion. This was a decrease of 55.6% q-o-q and 80.1% y-o-y, and was largely attributable to subdued investment appetite due to tightening monetary policy as well as mounting concerns about heavy supply pipelines. The largest deal traded in the quarter was the Pyeongtaek BLK Logistics Center, which was traded from Pebblestone to AEW for KRW 225 billion.

Outlook: Challenges in the financial market to discourage investment

  • A huge supply of about 1.67 million pyeong is scheduled for completion in 2023, but the expected stock volume is subject to change as supply delays have become more frequent. Given the upcoming supply in the pipeline, the vacancy rate is expected to surge, particularly in the West, as Incheon City will notably welcome a number of mega-sized centres.
  • As a result of the loan market crunch as well as higher risk premia imposed on cold assets, the logistics transaction volume is likely to remain low for the time being. The challenges include not only high senior loan interest rates but also the extreme difficulty in getting loan approvals in general, which dries up liquidity and expands cap rates further.

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

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