Gangnam Business District in Seoul
South Korea’s commercial real estate market will have a slow recovery in the second half of this year due to delays in rate cuts and no big corrections in the commercial real estate prices, according to Seoul-based IGIS Asset Management Co.’s report on Wednesday.
The office market in Seoul was more robust than those in global major cities in the first quarter of this year, said IGIS citing data from Real Capital Analytics (RCA).
The office market in Seoul showed a 4.4% increase in RCA’s commercial property price indexes (CPPI) for the first quarter compared with a year-earlier period, while Washington D.C., New York, San Francisco and London posted drops of 28%, 4%, 11% and 16.5% in the same period, respectively.
The CPPI for Seoul offices rose as new investments in Korean commercial real estate are concentrated in offices, which make up some 60% of all transactions in the market. Investors in hopes of rate cuts bet on prime offices in Korea, and there were no price corrections due to strong demand for offices in major business districts, IGIS said.
IGIS forecasts that investors will continue to favor a large office, which has 33,000 square meters of floor area. Such big offices can secure high-quality tenants, extensions or renewal of contracts despite their rent per square about 38% more expensive than other offices.
Overseas institutional investors may more actively bet on high-quality real estate in the second half as they believe prices have bottomed out, while Korean investors would take a more cautious stance as the price corrections haven’t been as dramatic as they expected, IGIS added.
Real estate investors should reconsider strategies to boost asset value to overcome challenges in fundraising and pricing, IGIS said. They need to seek portfolio diversification for value creation, particularly in real estate development projects, as there are more constraints in profitability due to increased financing and construction costs, it added.
By Myung-Hyun Han
wise@hankyung.com
Jihyun Kim edited this article.
