Image of Magok One Grove to be constructed by August 2024 (Photo file, courtesy of CBRE Korea)
South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, is facing challenges in its exit from a Seoul-based new prime office that the pension scheme has injected 2.3 trillion won ($1.7 billion), the fund’s largest investment in a single real estate deal in the country, as the property struggles with finding tenants due to poor demand.
Investment banking sources said on Thursday that the property, a part of state-of-the-art multiple building complex Magok One Grove in western Seoul, is yet to sign a contract with a future tenant. The office will be constructed by next month, with occupancy beginning in February 2025.
The upscale complex combines an office, a hotel and a shopping arcade with a combined 463,543 square meters of floor area, similar to the International Finance Center (IFC) Seoul’s 506,205 square meters.
There are growing concerns over the property’s high vacancy rate as the Magok, the last large neighborhood for development in the capital, is experiencing oversupply of offices and is far from Seoul’s major business districts – some 16 kilometers from Gwanghwamun and 27 kilometers from Gangnam.
“There are concerns over the oversupply (of the office) and its location on the westernmost area in Seoul,” said a real estate industry official.
“On the other hand, there are some opinions that the property will be highly occupied due to the rent price, which is nearly half others in the major business districts – six months to a year after completion of the construction is the most important period for lease,” the official added.
NPS signed a deal for the office in 2021 as a preemptive strategy to secure the asset. The 2.3 trillion won investment has been the pension fund’s largest capital injection in a single domestic property.
IGIS Asset Management Co., which manages NPS’ fund for the office, has tapped eight real estate firms including CBRE Korea and Savills Korea to accelerate securing future tenants.
NPS-backed prime offices have quickly attracted tenants so far.
The vacancy rates of Centerfield in the Gangnam Business District (GBD) and Grand Seoul Tower in the Central Business District (CBD) dropped below 15% within three months after the completion of construction, and Factorial Seongsu in eastern Seoul secured tenants for all of its space before it was constructed, according to Cushman & Wakefield,
There will be about 1 million square meters of office supply in Magok this year, with construction of K-Square owned by Koramco REITs Management and Trust Co. K-Square has secured tenants for about 25% of its space, industry insiders said.
By Byeong-Hwa Ryu
hwahwa@hankyung.com
Jihyun Kim edited this article.
