Office investment falls 15% in Q3 2021, CBRE says

The real estate investment market size in South Korea during the third quarter of this year reached 3.7 trillion won ($3.2 billion), showing a small decrease from the same period last year, according to a CBRE Korea report issued on Oct. 26.

The cumulative transaction size of Korea’s real estate market as of the third quarter of this year was 11.6 trillion won. This is similar to the record high posted in the first three quarters a year ago and about 64% of the total real estate investment size of full-year 2020, the report said.

Investments in office assets declined by over 15% during the third quarter of this year compared to the same period last year, while logistics assets and hotels attracted much more investment in the same period from a year earlier.

The transactions of office assets in the third quarter reached 2.8 trillion won, accounting for 75% of total real estate transactions in the same period. As of the third quarter, the average return rate of the highest-quality offices in Seoul slightly fell to 3.8% from the previous quarter. The vacancy rate of the offices in Seoul also fell by 1% to 8.2% compared to the last quarter.

The investment in logistics centers by the third quarter of this year increased by more than 13% year on year to about 1.8 trillion won. Three deals of logistics centers were closed during the third quarter, with a total of 320 billion won. CBRE said a number of ongoing pre-purchases are expected to drive logistics transactions for some time.

Rents in prime logistics centers, particularly brand-new centers in the Greater Seoul area, rose in line with low vacancy rates. The average return rate of the area in the third quarter continued its decline to 4.3% amid fierce competition in the market and a rise in asset value.

Also, some e-commerce and third-party logistics companies are increasingly using gas station sites in some major locations as logistics bases, for activities such as a parcel storage, amid growing demand for rapid delivery and fiercer competition for logistics centers with good access to city centers, the report added.

The hotel sector took 7% of total investment volume as several properties were confirmed to have changed hands in the third quarter. This included Tmark Hotel Myeong-dong for 95 billion won and renovated co-living house Mangrove Sinseol for 57 billion won, formerly Ramada Encore Dongdaemun Hotel, both acquired by Korea’s IGIS Asset Management.

“Limited supply combined with the steady economic recovery should drive down office vacancies in the coming quarters. E-commerce and third-party logistics are the major businesses driving demand for the logistics market in Greater Seoul, and we expect demand to increase steadily as more online platform companies will launch e-commerce businesses and more foreign e-commerce companies will enter the Korean market,” Claire Choi, head of research at CBRE Korea, stated in the report.

Write to A-young Yoon at youngmoney@hankyung.com
Jihyun Kim edited the article.