On the back of robust office leasing demand coupled with supply constraints, Seoul’s overall vacancy rate remains tight, hovering below the natural vacancy rate of 5%. Additionally, the three core districts – CBD, Yeouido, and Gangnam – are facing a future office supply shortage. On the other hand, Magok, an emerging market in Seoul, is set to welcome large-scale developments this year.
Magok’s transformation began with the 2007 Urban Development Project Plan by the Seoul Metropolitan Government. The development plan designated the Magok industrial complex as an R&D cluster, enabling eligible businesses in the R&D, IT, biotech, greentech, and nanotech sectors. High-end technology enterprises such as LG, Kolon, and Lotte have been in the cluster since 2016, contributing to its development. However, these buildings located in industrial complex and are primarily owner-occupied for R&D purposes. Furthermore, these buildings are constructed through government bidding processes with resale restrictions of five years after the completion.
As of July 2024, leasable office space in Magok accounted for only about 30% of the total office space completed after 2000. Additionally, Magok lacks prime-grade offices, with most leasable office buildings having a GFA of less than 10,000 pyeong (33,000 sqm). However, the Magok MICE (Meetings, Incentives, Conventions and Exhibitions) Complex Project, situated in a special planning district, is expected to supply a total GFA of approximately 250,000 pyeong in 2024.
Figure 1: Details of the Magok MICE Complex Project
Source: JLL Research, GFA and completion date are subject to further change
The project features a large-scale mixed-use development encompassing four blocks, combining business facilities, hotels, a shopping mall, a convention centre, and residential areas. This project has attracted significant investor interest, with several office properties being purchased before completion. One Grove (CP4) was acquired by IGIS Asset Management, backed by NPS (National Pension Service). K Square (CP3-2) was also pre-purchased by Koramco REITs Management and Trust through its blind fund, with investments from institutional investors such as the Teachers’ Pension, the Government Employees Pension Service, and the Military Mutual Aid Association. Additionally, Le West City Tower (CP1) was purchased by KT Investment Management before its completion.
Over the past 10 years, 2020 saw the largest Grade A office space supply in the three core districts, recording approximately 193,000 pyeong. However, the planned new office supply in Magok this year surpasses that figure, reaching about 200,000 pyeong. With a tightened vacancy rate and skyrocketing rent in the Seoul office market, finding vacant spaces has become a challenge. Consequently, enterprises that need to expand their office spaces, or are burdened by high operating costs, are expected to relocate their headquarters.
Magok offers the advantage of relatively lower rents compared to other submarkets. The marketing face rent of One Grove (CP4) is approximately 18% lower than the face rent of Grade A offices in Yeouido, the closest core submarket to Magok. With its affordable rents and ongoing developments, Magok is anticipated to provide tenants with alternative leasing options and bolster market sentiment.
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