Rebound in Transaction Activities in Domestic Commercial Real Estate Market

According to Seoul Figures Q2 2023 released by CBRE Korea, a global commercial real estate services company, 2023 Q2 domestic commercial real estate investment volume rose to KRW 3.8 trillion in Q2 2023, representing growth of 72% q-o-q. The period witnessed a significant recovery in office investment transactions at KRW 2.4 trillion, which more than doubled q-o-q.

This pushed up H1 2023 investment volume to KRW 6.1 trillion. Rent-free periods continued to decrease across major business districts, driving the growth of average rents. Average Grade A effective rents in Seoul rose 4.0% q-o-q. Solid demand will ensure vacancy remains low and rents continue to rise, with new supply set to be limited to a large office in Yeouido Business District (YBD) this year and several new buildings in the Central Business District (CBD) in 2024.
 
In retail, as the retail market shifts back to face-to-face consumption, growth in online sales is slowing. However, sales at high streets and department stores increased, and domestic retail sales grew by 4.6% y-o-y in Q1 2023 due to the gradual recovery of domestic consumption and easing of inflation.
 
Meanwhile, 16 new Grade A logistics facilities were completed in Q2 2023, and most pipeline projects that are already underway are reporting swift construction progress, with some properties originally due to come on stream next year having had their completion dates brought forward. This is expected to increase total new supply for this year to a record-breaking level. Average vacancy marked a 7%p increase from the previous six-month period resulting from the short-term impact of large-scale supply.

“As the Bank of Korea has frozen base rates four consecutive times at 3.5%, interest rates have begun to ease since the end of the last year, and the investment market is gradually rebounding,” explained Claire Choi, a Head of Research in CBRE Korea. “In particular, with competition for Grade A space intensifying, domestic companies are considering buying as well as leasing, while around 20% of investment volume was attributed to foreign capital, with overseas investors’ especially active in the logistics sector.” 

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