Grade-A office deals in Seoul hit record-high $14 bn in 2021: JLL

Grade-A office transactions in Seoul hit a record high of 17.1 trillion won ($14.2 billion) in 2021, breaking the 16.6 trillion won record set in 2020. The net absorption area, or physically occupied area minus the physically vacant area, reached its highest-ever 55,345 square meters last year, said Jones Lang LaSalle Inc. in its Korea Property Digest report on Feb. 3. 

Transactions of grade-A offices in Seoul were active thanks to low interest rates and ample liquidity. The sales price per unit area in the central business district (CBD) and downtown Gangnam broke previous records, the report stated.

Mega-deals in 2021 include South Korean conglomerate Lotte Property & Development Co.’s acquisition of a 25% stake in Lotte World Tower, the world’s fifth-tallest building, from Lotte Shopping Co. and Hotel Lotte Co. Also, SK Group bought SK Seorin Building, the conglomerate’s headquarters office, from Hana Alternative Assets Management Co. for more than 1 trillion won. Koramco Asset Management Co., a leading asset manager in Korea, sold CBD-based Pine Avenue Tower B to Samsung SRA Asset Management Co. for 617.4 billion won.

A huge office deal has already been closed this year. In early January, ARA Asset Management Korea completed the sale of Alpharium Tower based in Pangyo, so-called Korea’s Silicon Valley, to Mastern Investment Management Co. for around 1 trillion won.

Brookfield Asset Management-owned International Finance Center (IFC), based in Seoul’s Yeouido financial district, is currently on the market, for the sale expected to reach 4 trillion won. Korea’s game developer Krafton Inc. is slated to buy the headquarters and offices of Korea’s largest supermarket chain E-mart Inc. for more than 1 trillion won within the first quarter. Yuanta Securities Korea’s headquarters and Seoul City Tower, both in the CBD, are on the market as well.

LOW SUPPLY IN 2022 TO BRING DOWN VACANCY RATE

In the fourth quarter of 2021, the vacancy rate for Seoul-based offices slid to 8%, nearly half that in 2020. Vacancy rates in Gangnam, Yeouido and CBD in the fourth quarter dropped by 422 basis points (bps), 318 bps and 128 bps, respectively, from the third quarter. Particularly, the vacancy rate of Gangnam-based offices hit 1.5%, the lowest-ever point in the past decade.

Meanwhile, rental prices of Seoul-based offices have soared backed by growing demand. In the fourth quarter of 2021, the average monthly rent for grade-A offices amounted to 30,424 won per square meter, the highest ever. Price adjustments and low vacancy rates backed the monthly rent increase, the report said.

Rents for grade-A offices in Seoul are expected to rise in the future, said Veronica Shim, head of research at JLL Korea. As the vacancy rate continues to stabilize, a rise in nominal rents and shorter rent-free periods are expected, she added.

Korean real estate investment firm IGIS Asset Management Co. is undertaking the only new office supply this year, a 49,587-square-meter office development on the former site of Hyundai Motor Company's Gangnam Central Branch.

The report forecast this year's vacancy rate to be even lower than last year's as there is not much office supply available for leasing. 

Despite the bullish market sentiment, office transactions in Seoul could slow due to low supply and interest rate hikes, said Chang Chae-Hun, the country head of JLL Korea.

Write to A-Young Yoon at youngmoney@hankyung.com
Jihyun Kim edited this article.