Economic slowdown motivates Korean conglomerates to rethink real estate strategies

November 30, 2015 / By  

Korean conglomerates have historically been major owner-occupiers of real estate. However the ongoing economic slowdown is causing these powerhouses to rethink their real estate strategies and focus on core business activities.

The trend is most apparent at Samsung, the nation’s largest conglomerate which is marketing a number of buildings for sale and is considering a major reorganisation of affiliates’ office occupancy needs.

Since late 2014, Samsung has offered ten regional office buildings for disposition worth a total of USD 110 million. In recent months, sale activity has been extended to core real estate with an additional ten Seoul office buildings reported to be for sale via a mixture of vacant possession and sale-and-leaseback deals. Total potential proceeds from these sales may reach a further USD 2.3 billion.

Among stock that is being retained, Samsung is rumoured to be considering an extensive reshuffling of affiliates’ occupancy needs. Better performing businesses are expected to be accommodated in core owner-occupied properties while less well performing divisions may be relocated to corporate-owned stock in secondary locations. The reshuffle may see Samsung Electronics relocate from the landmark Samsung Town in Gangnam to their Suwon headquarters and the recently completed Samsung Electronics Umyeon-dong R&D Center on the south fringe of Seoul. A part of Samsung C&T construction division may also depart Samsung Town for the Pangyo submarket with backfill space possibly occupied by financial affiliates relocating from lower grade CBD buildings. Other unidentified group affiliates may then consolidate to pockets of space in the vacated CBD buildings.

With attractive incentives still available in the leasing market, affiliates may also follow the lead of Cheil Industries who achieved significant rent savings by recently relocating outside of Samsung owned stock; their shift from Samsung Life Soosong Tower in the CBD to the Military Mutual Aid Association Hall on the south fringe of Gangnam is estimated to have nearly halved the division’s rental costs.

Reflecting their market-leading status and the uncertain economic outlook, Samsung’s efforts to realign its real estate strategy are expected to filter down to other domestic conglomerates and be a key feature of 2016 business plans. That may lead to an uptick in investment opportunities in the tightly-held Seoul office market and see existing landlords focus on attractive rental incentives to successfully lease office space to conglomerates over the coming 12 months.

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